On the line: in Romania, mining brings foreign investment at a cost

Many people instantly associate the ‘resource curse’ with images of African blood diamonds and mining-induced population displacement in Latin America. Few think Western countries are susceptible to such problems. But Romania, and other countries in Eastern Europe, are experiencing their own form of the paradox of plenty.

Since the fall of communism Romania remains economically weak. Severely affected by the global economic crisis, its GDP fell more than 7% in 2009, forcing the Romanian government to request a $26 billion IMF emergency assistance package. Following this, the Romanian government adopted drastic austerity measures, resulting in a further 1.3% GDP contraction in 2010. Things are looking better since then; the economy strengthened in 2011. But Romania still lags behind its more affluent European counterparts.

There is potential, though. Compared to other countries nearby, Romania’s natural resources can help kick-start a broader recovery. A mining boom has spared Australia from the downturn, and whilst far poorer and lacking modern infrastructure, Romania remains rich in natural resources – petroleum, timber, natural gas, coal, iron and gold.

But taking advantages of this requires investment. In an effort to boost economic growth, the government is wooing foreign companies, a plan that comes with significant risks. In 2005, the government sold over 35,000 hectares of forests to a Harvard University trust fund, effectively making a foreign institution the second-largest forest owner in the county (second to the Romanian government).

This seems innocuous enough, but other efforts are more controversial. As I’ve written about on PiS before, the most contentious plan is the foreign-led Rosia Montana gold mining project. The price of gold has been rising for years now — from $300 an ounce in 2000 to a current rate of around $1650 per ounce. So it’s no wonder that Gabriel Resources Ltd., the Canadian company behind the project, is pining to dig up the estimated 800-4,000 tonnes of gold squirreled away in Rosia Montana.

Yes as I mentioned in my last post, Romania would benefit little (20 percent of profits) and will potentially have enormous losses to cover in terms of environmental clean up. Gabriel is not obligated to comply with Romanian law and it is estimated that the project will use over 40 tonnes of cyanide per day. Moreover, the mine would mean destroying four forested mountains, contaminating multiple rivers and devastating several fragile ecosystems. Meanwhile, the long term economic effects are uncertain. The project is not set to significantly benefit Romanian gold processing and refining industries.

Like other resource curse scenarios, the Rosia Montana project has generated a mounting conflict between the government and the general public. The project was made public only after the government had already given consent to the Canadian company, without preliminary public consultations. When it was finally announced, the initiative was greeted with massive opposition from the Romanian public.

This is not to say that gold extraction should cease completely. Rather, it should be extracted using the most advanced technology and bidding processes, conducted in a transparent manner which respects Romanian citizens’ wishes.

The Rosia Montana project will set a precedent. Romania poses enormous shale gas resources, which is attracting interest from U.S. energy companies. Just like Rosia Montana, the proposed shale gas projects pose significant environmental risks.

Romanian government should strive to avoid falling into the all too familiar resource trap. While foreign-led resource extraction may seem as an easy way to ensure economic growth, it is often not sustainable in the long term and poses enormous ecological ramifications. The government must remember that, above everything else, it has a responsibility to protect and promote the Romanian people’s interests, not those of foreign investors.

Raluca Besliu is a masters student in Refugees and Forced Migration Studies at Oxford.